Industry reassures members of DB pension protections

The pensions industry has hit back at the ‘hyperbolic’ reaction to the recent market volatility, with industry experts reassuring defined benefit (DB) members that their pension benefits remain protected.

The Bank of England (BofE) announced market interventions last week, after gilt yields saw an unprecedented surge following the Chancellor's mini-Budget, designed to prevent a 'vicious spiral'.

The issue made national headlines, as commentators raised concerns that DB pensions could be on the 'brink of collapse', and that the challenges could mean the end of liability driven investment (LDI) strategies.

However, the Pension Protection Fund (PPF) has since reassured members, reminding savers of its role as a pension lifeboat.

PPF chief executive, Oliver Morley, said: “Recent market stresses will understandably have caused concern amongst pension savers.

"It’s important that members of defined benefit schemes understand that we are ultimately here to protect them if we are needed to step in.

"I want to reassure members that we remain confident in our funding position – and their benefits remain fully secure. We are carefully managing our investments and closely monitoring the impact of market movements on the schemes we protect.”

In addition to this, Bayes Business School professor of asset management, Andrew Clare, suggested that the concerns over pension fund collapse following the mini-Budget were “hyperbole”.

"It is true that pension fund trustees and their investment advisers have been very busy recently, but certainly not because their schemes are about to go bust or need a bail out," he clarified.

“Once the dust settles, I expect most schemes to be in either the same funding position that they were prior to the mini-budget or even in a better one than before.”

Indeed, analysis from PwC has revealed that market volatility has pushed the collective defined benefit (DB) funding level to a record high, with the funding status for most pension schemes at a strong level.

However, there is still work to be done, as industry experts have stressed the need for pension schemes to bolster their collateral position, urging trustees to take action before the BofE interventions end.

Speaking to Pensions Age, XPS head of investment Ben Gold, also said that, while the recent issues won't mark the "end of LDI fundamentally", there will be learnings to take from the recent operational challenges presented amid market turbulence.

"There isn't an alternative that can take the place of LDI and do the same job as effectively, so it's I don't think it will be the death knell that some people think," he explained.

"I think schemes will learn and managers will learn, and there will be some evolution of the offering to help avoid this type of situation happening again."

Indeed, Gold suggested that, once the dust is properly settled, there may be a broader review, suggesting that pension schemes and advisers will want to look at LDI managers and consider which have coped effectively, and which haven't.

"That could definitely have an impact on the LDI market, because it's definitely the case that different LDI managers have coped with this situation differently," he continued.

"If some are deemed to have handled it much less effectively, then there is definitely a risk that they could be less attractive in the future... in an extreme case pension schemes could even look to change managers and move their assets to a manager they have more confidence in."

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